Councils don’t have the resources to make sure developers of new homes are paying enough towards local services, a damning government report claims. 

Housebuilders can be required to pay money towards infrastructure such as new roads, schools and doctors’ surgeries as a condition of their planning permission.

They may also be told to fund the building of affordable housing. 

However, public spending watchdog the National Audit Office has said the system isn’t working properly because under-funded local planning authorities often don’t have the resources or skills to stand up to developers.

In a report published today, it said: ‘Current policy is not reliably delivering the infrastructure funding required for new developments. 

‘Local planning authorities are stretched, both in terms of finances and skills, meaning they are often unable to effectively challenge developers.’

On the road: Councils can make housebuilders pay for amenities such as new roads, but a new report suggests they aren’t getting the most out of these arrangements due to a lack of funds

The local planning authority is usually part of the council, apart from on very large developments where responsibility might be handed over to a body such as the Greater London Authority. 

Councils’ funding is handed out by the Ministry of Housing, Communities and Local Government. 

Most are facing significant financial pressures thanks to funding cuts in recent years and the rising cost of providing services. 

The NAO report went on to say that experienced staff from planning departments were leaving councils for the private sector because they were unhappy with the ‘working environment, caseloads and pay.’ 

It also noted that developers could afford to employ professional negotiators and consultants, giving them an upper hand. 

‘There is an imbalance in capacity and capability between the public and private sector, and larger developers generally have access to specialist negotiating skills,’ the report said. 

‘Some local planning authorities rely on external consultants to provide expertise, but there are perceived conflicts of interest, as consultants sometimes work both for local planning authorities and developers.’

Sir Geoffrey Clifton-Brown, Conservative member of parliament and chair of the influential Public Accounts Committee of MPs, said: ‘An effective and efficient system of obtaining contributions from developers is essential to providing local infrastructure, such as schools and health facilities, and delivering on Government’s commitment to build 1.5 million homes over this Parliament. 

‘The NAO report highlights that issues around skills and capacity in planning authorities mean that too often the developers are favoured at the expense of local communities.’

The Government says it has launched several programmes to help make the system more effective, including initiatives to enhance the skills of local planners, and to assist new housing schemes that are progressing too slowly. 

Counting the cost: Developers can ask councils to reduce their required contributions to affordable housing, if a financial statement shows they won’t hit their profit target

What do housebuilders have to pay councils?  

There are two main ways local planning authorities can get developers to contribute to amenities.

Section 106 agreements can be drawn up between the council and the developer to help fund affordable homes. In 2023 to 2024, about 27,000 or 44 per cent of affordable homes built were paid for in this way. 

However, once built the homes must be sold to organisations such as housing associations which will manage them in the long term. 

As of October 2024, around 17,400 affordable homes remained unsold to according to a Home Builders Federation survey.

In December 2024, MHCLG launched a service to match up buyers and sellers of affordable housing funded through Section 106. 

Developers can challenge the amount they are being asked to pay in a Section 106 if they can provide a financial assessment proving that it would make the development unviable. 

The NAO report said that local authorities found it hard to challenge these objections because of a ‘lack of transparency, limited expertise, and the ability of larger developers to use consultants to reduce their contribution obligations.’   

The second funding method is by getting developers to pay something called a Community Infrastructure Levy. 

This can be used for things like roads and schools, but not for housing. Just over half of local planning authorities use these. 

Cllr Adam Hug, housing and planning spokesperson for the Local Government Association, which represents councils, said: ‘Developer contributions play a vital part in delivering the infrastructure and affordable housing that communities need. 

‘Councils work hard to secure these contributions, but the current system is not delivering the full benefits it should.

‘It’s right that the National Audit Office recognises the challenges councils face, and the need for further capacity and capability support for council planning departments.’

The NAO also criticised record keeping on how much developers were paying to councils. 

While councils who receive Section 106 or CIL money must provide a statement each year to the Ministry of Housing, Communities and Local Government, which oversees councils, it said some didn’t provide them on time and others didn’t have enough detail. 

MHCLG’s latest estimate suggested that the value of agreed developer contributions was £5.5billion in 2022-23, down from £6.4billion in 2019-20.

In 2024, the Home Builders Federation estimated that local authorities in England and Wales held over £8billion in unspent developer contributions. 

This is partly because building projects often take a long time to complete.  

Gareth Davies, head of the NAO, said: ‘To ensure the developer contributions system delivers value for money, important issues must be addressed, including reducing the imbalance in skills and experience between local planning authorities and large developers; the complexity of financial viability assessments; and the lack of coordinated central Government support.’

This is Money contacted MHCLG for comment.